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Saturday, May 25, 2002

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Divestment condition waiver -- Coke gets thumbs down again

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THE Government has again rejected the application of Coca-Cola seeking a waiver from the mandatory condition of disinvesting 49 per cent of stake in the company's Indian bottling operations to domestic public shareholders.

This is the second time that the company's proposal seeking a waiver is being rejected. The Government rejected a similar application filed by the company on October 3, 2001, on the grounds that entry-level conditions would not be waived.

Coca-Cola had sought either a deletion of the mandatory disinvestment clause or an extension of five years for the IPO as the company's accumulated losses were substantial (estimated to be over Rs 2,000 crore).

The decision to reject the company's plea for a waiver is well in line with the recommendation of Parliament's Standing Committee on Finance. The committee had recommended that the Government should not concede to the request from several multinationals including Coca-Cola for a waiver of the mandatory disinvestment clause.

The committee's rationale was that the sagging capital market needed a boost and any relaxation in this regard would only serve to defeat this objective. Further, the committee had made it clear that no extension of time frame should be given to the MNCs for complying with the disinvestment clause. The Government imposed the clause stipulating disinvestment of 49 per cent of the shareholding to the Indian public when Coca-Cola was allowed to buy out Indian bottlers instead of setting up greenfield bottling plans as the company had initially proposed.

Coke's arch-rival in both the international and domestic markets, Pepsi, was not subject to such a mandatory disinvestment clause because it opted to set up several greenfield bottling units.

Highly placed official sources in the Government have confirmed that the decision to reject Coca-Cola's plea has already been communicated to the company by the Minister for Commerce and Industry, Mr Murasoli Maran. The Minister was, however, not available for comment. However, when contacted by Business Line, Mr Sanjiv Gupta, Deputy Division President, Coca-Cola India, maintained that "the company has not received any communication from the Government in this regard."

The application was filed by Hindustan Coca-Cola India Pvt Ltd, a wholly owned subsidiary of Coca-Cola India that runs the bottling operations which the company has taken over from the Indian bottlers. While rejecting Coke's application in October last year the Government had given the company an option to divest its equity through the private placement route if it did not want to launch an IPO.

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